Three ways to tax-boost your charitable giving

Three ways to tax-boost your charitable giving

You support your favourite charitable causes because you care. Sometimes you share their message, sometimes you volunteer, and sometimes you donate.

While all those activities are positive contributions, you can also receive some favourable tax benefits. And for simplicity, we’ll assume cash donations in our examples.

Don’t apologize for the tax break

Now, some people may think it’s a bit distasteful to talk about tax breaks in the same breath as charitable giving. Shouldn’t it be about the caring, and not the money?

True enough, caring about the cause must be at the core of your decision to donate. At the same time, if you have given out of a kind heart and are still entitled to a tax break, why would you not claim it? There are at least two ways to look at this:

Using the tax break allows you to reduce your out-of-pocket cost to donate, or

Understanding that the tax break is coming, you can choose to give even more

Boost 1: Payback through a tax credit

For starters, the government literally pays you back when you make charitable donations. It does so by allowing you a ‘tax credit’, essentially a reduction in your annual income tax bill.

Let’s say that you make a donation of $100, whether that’s to one charity or across a number of them. The federal government and the Ontario government will each reduce what you would otherwise owe them. Combined at current rates, that would give you back about $20.

In effect, it cost you $80 for the charity to have $100 to work with. Not a bad deal.

Boost 2: Stepping it up to the next tier

Okay, now we’re going to make you even more generous, and in turn we’ll see how the tax system is generous back to you in return.

If you make donations over $200 in the year, the tax credit is increased to slightly over 40%, or a few points higher for those at the top bracket to line up with their higher tax rate. Either way, that’s almost half back from the tax collectors what you gave to the charity in the first place.

Keeping with those rounded figures, here’s the breakdown on what a $400 donation would look like: credit would be $40 on the first $200 and $80 on the second $200, for a total of $120.

DONATIONS

TAX CREDIT

First $200

$40

Second $200

$80

Total donations: $400

Total tax credit: $120

In this case, it costs you $280 for the charity to receive $400. That’s a deal that continues to get better as you make even larger donations entitled to the higher credit rate

Boost 3: All in the family

There is one simple way to get up to that higher credit rate faster, and that’s by combining donations in your household. Spouses are allowed to report their combined donations on one of their tax returns.

If two spouses had each made $200 in donations and separately claimed them, the total credit would have been $40 x 2 = $80. But as we saw in that last example, by claiming on one of their tax returns they would receive a $120 credit, a 50% difference just for filing with this in mind.

Donations

Tax credit

Spouses donate separately

$400 ($200 each)

$80 ($40 each)

Spouses donate together

$400 (together)

$120 (together)

Once more, charitable giving is first and foremost about being charitable. But when you combine it with being tax savvy, you can make your money go further, whether you take that benefit yourself or you share it with the charity.

To learn more, contact your Meridian branch today to book an appointment with one of our wealth professionals

About Doug Carroll

As Practice Lead for Tax Estate and Financial Planning at Meridian, Doug researches case law, legislation and financial media, in order to prepare support material for Meridian Wealth Advisors, and in turn for Members. The balance of his time is spent writing articles for financial media, speaking on financial industry conferences and public seminars, and consulting directly with Members who have complex needs, particularly business owners.